Magazine-Cover Curse Takes on New Meaning in Asia

By William Pesek -
Mar 18, 2013

Will Shinzo Abe’s plan to revive
Japan suffer the magazine-cover curse? Might Benigno Aquino meet
the same fate in the Philippines?

What both leaders have in common is everyone slapping the
“-nomics” suffix onto their growth strategies. “Abenomics”
has excited investors, not to mention the pundit class, with its
aim of ending 15 years of deflation. The same is true of
“Aquinomics” in a country long deemed the sick man of Asia,
now an investment darling.

Such bouts of euphoria often end in tears: “Reaganomics,”
“Rubinomics” and “Bushonomics” in the U.S.;
“Thatchernomics” in the U.K.; “Berlusconomics” in Italy; and
“Thaksinomics” in Thailand. Sometimes the reckoning comes in
short order; other times it takes decades. The track records of
all too many of these supposedly new formulas for prosperity are
questionable.

The problem is hype versus real change. Having one of these
splashy appendages added to your ideas tends to have the same
reverse karma payoff as being on the cover of a large-
circulation magazine. By the time a trend or ideology is popular
enough to warrant such a tribute, the game is already up. So, is
the buzz about the Japanese and Philippine economies overdone?
It will be if leaders put too much stock in their own press.

Implementation, Stupid

All this gets at Asia (MXAP)’s big challenge is 2013: modernizing
financial and political systems to make sure economies are
moving in the right direction. Only that will ensure that
today’s hype becomes tomorrow’s reality.

Asia has performed remarkably since 2008, avoiding the
worst of the aftershocks from the U.S. financial crisis and
weathering Europe’s debt mess. Growth has been consistent and
rapid, asset markets buoyant, and consumer and business
confidence positive. It’s vital to remember, though, that Asia’s
success story in recent years is a macroeconomic one. Changes to
the region’s micro-economy are lagging.

Japan is Exhibit A. Abe has gotten impressive mileage in
currency and stock markets out of his determination to end
Japan’s lost decades. Yet Abenomics is still a macro vision that
lacks details. Abe needs to work fast to fill them in if he
wants investors to stick around.

Xi Jinping’s blueprint also lacks clarity. Business leaders
are optimistic that China’s new president can keep the second-
biggest economy growing 10 percent a year without choking on the
pollution it generates. It’s unclear how Xi will simultaneously
shift the economy away from its dependence on exports, raise
living standards and reduce the corruption fueling inequality.

There’s reason to worry that style will trump substance. In
December, Xi’s first trip after becoming Communist Party head
was to Guangdong province to draw parallels to a 1992 tour by
Deng Xiaoping that spurred the country’s economic opening. Xi’s
comments on the economy are surprisingly reminiscent of what
Deng was saying back in the late 1970s. Reaching back to the
Deng era for ideas that are obsolete in today’s world is China’s
version of the U.S. cult of Reaganomics.

What works in one setting and time doesn’t necessarily
translate to another. For example, slaves to the dogma that
lower taxes cure everything forget that a more balanced and
nuanced approach is required sometimes. China needs to embrace
new ideas, not the unlimited armies of cheap labor, repression
and forced industrialization that colored Deng’s era.

One reason investors are so intrigued by Aquino’s handiwork
in the Philippines is how pragmatic it seems. Halfway through
his six-year term, Aquino has increased taxes, arrested his
predecessor on corruption charges, ousted the country’s top
judge for illegally concealing his wealth and acted to reverse
the overpopulation that perpetuates poverty.

Aquinomics’ Yield

This helps explain why a nation rated one level below
investment grade is paying about 3.5 percent on debt due in
2023, almost 2 percentage points less than similar-maturity
securities from higher-rated Indonesia. I caught up with Finance
Secretary Cesar Purisima in Manila last week and posed the
question of whether Aquinomics represents substantive change or
a marketing slogan.

“The president believes that the best way to ensure our
sustainability of what we’re doing is still really going beyond
personalities, making sure we embed and institutionalize the
reforms,” he told me. “Embed it through changes in
legislation. Embed it through investment in our institutions,
changing the way we reward and remunerate them. We’re starting
that with our incentives-based compensation. More importantly,
to change the people’s expectations. After all, it is the people
that vote presidents to office.”

Officials in Japan or China tend to think they don’t have
much to learn from the Philippines. But the kind of mindset of
which Purisima speaks is missing from both Abenomics and Xi’s
plans for China. It’s missing from Indonesia, as officials lose
sight of why investors flocked to their nation in recent years.
It’s missing from Malaysia, where the government perpetuates
four-decade-old affirmative-action policies that hurt
competitiveness. It’s missing from Singapore, where leaders seem
to believe population growth is what matters most.

The key to succeeding is keeping perspective. Just because
a policy direction is relevant at a given moment doesn’t make it
a universal economic theory. Disciples of Abenomics, for
example, forget that promising to end deflation means even less
than making the covers of magazines. What matters is doing it
and how you get there.

(William Pesek is a Bloomberg View columnist. The opinions
expressed are his own.)